Consumption-based Everything. Its all about the money, really!

We've all heard the term "money makes the world go round", and it is definitely the biggest driver for the adoption of consumption-based IT models among modern enterprises. The shift to consumption-based services has been increasingly pronounced, especially as companies seek to do more with less.

As much as organisations understand that IT is critical for business enablement, many are constantly looking for better ways to manage IT spend through cost reduction, containment and savings. Many find that consumption-based IT is the answer.

In terms of adoption, uptake is so far the strongest in the storage-as-a-service space, leaving the on-premises x86 server to consumption based model in second place.

Due to ongoing tough economic conditions, many organisations are progressively reducing their IT budgets, with every budgeting cycle. This inevitably puts pressure on an organisation’s IT department, as technologies change frequently and businesses need to keep up to remain relevant and competitive.

Risk:
On the one hand, the financial constraints that limit access to expensive IT technologies can result in a risk for organisations when they lag in terms of acquiring the relevant products and solutions to drive their businesses.

The consumption-based model helps organisations ease the pain of having to lay out significant capital expenditure (capex) upfront when acquiring IT-based technologies. These savings can enable enterprises to use their available cash reserves to grow their core business and become more innovative in their quest to lead in their specific markets.

Conversely, the traditional outright purchase of ICT hardware, software and services absorbed a significant amount of cash, while often realising insignificant return on investment for many organisations.

Grudge expense:
Needless to say, the capex model did little to dispel the notion among business executives that IT spend is essentially a grudge expense. It became a painful exercise for IT departments to continuously present business cases for technology upgrades and refreshes.

I would argue that a consumption-based IT model is one that every organisation should look at very closely. We live in a world that is riddled with unknowns and untold levels of risk. The Covid-19 pandemic has permanently alerted the world and businesses have not been spared from its devastating impact.

Why you should switch?

Obsolescence: Technology has become pervasive, but changes and evolves constantly. Businesses often find it onerous to keep up with this fast pace of change. Opting for a consumption-based model, anchored on an opex payment structure, allows organisations to manage their cash reserves better, gain agility and lessen the risk of taking full ownership of IT.

Service excellence and currency: An opex model is beneficial to businesses because annuity contracts with service providers can be structured so that exit clauses are not onerous or too taxing. On the other hand, businesses can demand the highest level of service, in the context of the “as-a-service” model from respective providers. It gives them currency to push service providers to implement the latest, safest and most resilient IT as-a-service in their environments.

Chargeback and recovery: Adopting a consumption-based model allows IT departments to introduce intra-business chargeback and recovery, which ensure that IT investment is continuously aligned to business value. This is particularly well suited to organisations that use activity-based costing models in their manufacturing operations.

The adoption of hybrid IT solutions, coupled with a consumption-based IT model, resonates well with many modern enterprises, as this approach addresses the fundamental issue of cost efficiency that all organisations are looking for.